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Thursday, November 4, 2010

Wells Fargo Plans Dividend Boost

Wells Fargo (WFC) has been a long time holding in the Net Payout Yield Portfolio mainly because the company use to pay a sizable dividend. WFC also has one of the best management teams in the banking sector.

The position size has remained small for a while mainly due to the cut of the dividend back in the financial crisis. WFC currently pays a annual divy of $.20 amounting to paltry 0.8%. Nothing worthwhile of the Net Payout Yield which typically finds companies with yield exceeding 5-6%.

Today, the CFO announced at the BancAnalysts Association of Boston conference that they were working on plans of reinstating a dividend that eventually would match the 35-40% payout ratio from before the crisis. At current stock prices, that would place the divy over 4% based on the estimate of earnings at $2.8 in 2011. WFC becomes a lot more attractive to investors with a 4%+ divy. Looking at adding to the position prior to such a move.

The CFO said at the BancAnalysts Association of Boston conference returning capital is "a high priority" for Wells Fargo and management is "seriously" thinking about it.

Wells Fargo, like many banks, cut its dividend because delinquent loans eat up capital. It reduced its quarterly payout in 2009 to 5 cents from 34 cents. Asked during the bank's third quarter earnings presentation with analysts last month about how much of its profits the bank intends to pay in the form of a dividend, Atkins said, "We're eager to return more of our capital back to our shareholders. They've been very patient. And we had historically paid in that 35% to 40% range, give or take. We'll have to see how we pace into that. Obviously, we'll be in consultation with our regulator, but we're just eager to get back to a more appropriate level."

He added that the dividend "will be the first place to go," and the bank will continue to buy back warrants.